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tv   Road to the White House  CSPAN  May 11, 2014 10:00pm-11:01pm EDT

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idea that this is leveling the playing field more than clarifying the law? >> if we are talking about temporary liquidity as one element or one tool in the liquidity isorary available to all size institutions. it is not unique to large institutions. getfdic and others, they potential he access to liquidity. there is not some sort of on level playing field. >> why are you having this temporary liquidity? >> many times you are insolvent, you get this liquidity, where does this capital come from? >> how is that different from the small or medium-sized entities? >> well, they are taken in.
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creditors are subject to loss. [captions copyright national cable satellite corp. 2014] [captions performed by national captioning institute] >> under dodd-frank it says the share holders are going to get wiped out. >> that's not what it says. it says the creditors who put the debt in, knowing it is secondary capital, are going to take the loss. in the meantime, the creditors at the operating units can flea. they can get their money. they can go, and they will. therefore, they are protected. therefore, if i'm a regional bank, i don't have that assurance under title one or title 2. title 2, particularly. so it does have the effect of favoring one group over another. >> so i think the intent of dodd-frank is to make sure that shareholders and creditors are at risk. >> some creditors.
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shareholders and some creditors are at risk. >> inso many conveniencey or a wind-down is the last result. we heard this morning that the banks still need more capital. they are still too over-leveraged. then we heard, no matter how many assets you put in these banks, it will never become not risky. i wonder if they are trying to meet benchmarks and finding it is crippling their businesses as they are funneling cash from certain business lines to the ed, just to have it sit there. i'm wondering if you could comment on how you view the effectiveness of the current capital regulations and how it really affects the balance sheet. >> sure. and in this discussion, of course, there are people that distinguish between capital levels and of course whether they should be risk-weighted or
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not. i think tom has a view on that and has spoken about it many times. we think if you look at the requirements for increased apital, in-- they have increased capital levels extraordinarily. they have assumptions and models that are worse in some respects in the 2008 crisis in terms of gdp, reduction, unemployment of the currency markets and more. and even under those extreme scenarios, you had severe tier one equity rates maintained at the bare minimum and sometimes extensively higher. there is a trade-off, as you and i have talked about off-line. you can have security by requiring banks to hold all cash. then you don't have a bank, you have a pile of cash. so as you move from potential
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abyss to 100% security, you have to assume some risk. people have views about hoump is enough. we think the recent changes and requirements of regulators have dramatically increased capital to a point that is in the best interests of safety and soundness. going further, puts, we think, undo downward pressure on deployment of capital in ways that are not helpful and not needed. then there is the issue around leverage ratios. i think leverage ratios are an appropriate measure, but they should be a background measure, not just the primary measure, because it is not about the leverage but the riskiness of the leverage. i think that's a more important nuance way to put it. >> tom? >> first of all, i think it is absolutely incorrect to say that the industry is well capitalized. when you look at the largest institutions and look at their
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embedded leverage, look at their off-balance sheet and bring it in under current conditions, they have about a 4.5% tehranible capital of total sets, including their off -- 4.5% tangible capital of total ssets. they are actually holding half. then we say, let's use the risk-based capital which allows you to manage it down 40% in risk-based capital ratio. you get the impression they are well capitalized when in fact, they are not. let's talk about the leverage ratio. leverage ratio says here's how much loss of capital we have to absorb mistakes. in 2008 when we were talking about capital and using risk
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weighted. 10% was a number. 11%. but the tangible capital of total assets was around 3% or less. no loss absorbing. we made this very significant event in terms of the failure of behr-stern s&l ehman -- now we are taking about risk based for capital. with that risk base, i think, is a nice backup. as john reese said tozz, risk is mething you can check on ex-post. i can't anticipate it, because those who were anticipating it were giving certain sovereigns zero risk weight when there were ajor problems. certain lending low-risk weight.
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so we should use a leverage ratio that says here's how much capital we need as i minimum, and then back that up and say, here's how we allocated our risks. now let's make adjustments accordingly. sounder give us a base and somehow we can anticipate those riss -- risks. ur capital ratios are too low. we will have a better system as a result. >> i know we are still waiting on some finalization on the basil-3. banks are moving toward that. even as they are trying to build up their capital base, there has mn been some legislation on capitol hill to transform what the business sector looks like. we have the warren-mccain bill. we have the brown-vitter bill
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that charged a surcharge for the biggest abouts above $500. then we have this bill that pretty much does the same thing. it seems like there is enough public opinion to support any one of these. tim, if you had to choose one, which is the lesser of all evies? >> first of all, i don't think your premise that there is enough public support for any of them to move is correct. >> the fact it is drumming up enough support that some feel there is enough in my base to move one forward. >> maybe i could just address
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each individually. if the premise for his tax reform is to have a more simple, less nuanced tax code where you feature lower rates and reduce the number of taxes, exemptions, prempses, and deductions, i'm not sure how directionly heading a new tax for a specific purpose furtherers the goal of tax simplicity. if it is level one, i don't think the goal and the actual proposal actually line up very well in that regard. number two, it is a tax increase, not dedicated for purposes we talk bd today, but going in for the general fund. i'm sure people in the room have a different view about the validity of tax expenses. lastly, if you add costs to the costs of financial institutions, you will get less of it. and it has an effect on the economy. at a pretty awkward time for that to happen. in terms of the so-called modern
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day glass steigel act, even senator warren was quoted as saying the repeal is not what caused the crisis and wouldn't have prevented it. many others have said the same ning. most conservatives would say it is not government's job to tell a particular industry what size you can be or what lines you are in. if you go back and deconstruct the crisis you wouldn't presume that the repeal of glass-steigel would have prevented the crisis. i don't think. lastly, with respect to brown-vitter, some say it represents draconian increases in taxes that it would have very debtmental effects on the economy. -- detrimental effects on the economy. and we are making trade-offs here between the abyss and 100% security. as you move toward security, you begin to lose what you need for
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deployment of the economy. we think the capital requirements of dodd-frank, and as the regulators have posed them so far, while challenging are about right. there will be ongoing debate. the regulators have said, if more needs to be done, we'll do it. i don't think having the congress weigh in trying to mandate capital requirements from the united states congress is a wise way to go. >> ok. i do have a preference. i'm not looking at cutting them in force, but i am a strong proponent of separating the commercial banking business that is tied to the payment system from the broker-dealer, investment, high-risk trading activities completely. ere's why. when you passed this, what you
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did is you took the federal safety net of the discount window and the deposit insurance system that was confined mostly to the commercial banking industry, and you now pushed it out, and made it available to a whole different type of industry called broker-dealer trading, igh-risk activities. what did you think was going to happen when you give that kind of subsidy of on -- an insurance program to those kinds of activities. when you say this didn't create the crisis, counter factuals are always important, but look at the behavior you began to initiate. if you were going to compete, a commercial bank who now has a right and the ability to engage in broker-dealer trading activities with the safety net behind them was in the winning position. if were a broker dealer, investment banker broker dealer
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who was trading and you didn't have the safety net, you were subject to all the market discipline in the world. you couldn't leverage yourself as easily, and therefore you lose. so what you saw was, strong efforts to change how they operated. number one, you either merge with a commercial bank or leverage so you can become similar to the others too big to fail or thought to be too big to fail. what you did is you allowed through this safety net, this subsidy, that balooning up of risky activities underneath the safety net. and then you encouraged the leverage that comes with that. when you looked at these institutions, their whole idea was to push leverage up. so let's say the commercial bank trading in these activities gets a bad trade. they are trading for their own
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account, whatever it is. the broker rules are supposed to address this. but even under the inventory model. you go to the market, and you are short, and the market moves against you. if i'm a hedge fund, i either come up with the capital, margin call, or go out of business. but if i'm a commercial bank with access to a discount window and enormous liquidity, i go in, and guess what, i work my way out of a bad hedge with more positions. who can compete with that? it is unfair competition. it gives them a competitive advantage that no one else has. and guess what? they are the ones that survived. sthats one of the reasons you have seen this enormous increase in size, complexity, and concentration within the industry. i would separate it out. we are still going to have large institutions. i'm not worried about our global competitive position. they are going to be very large. in broker dealer, if we make the fundamental changes, a far more
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innovative and bring us back to being the capital formation ountry in the globe. >> you favor reason statement of glass-steigel? >> plus using long-term position assets that allow you to fund. and the question was asked of some, do you believe in money markets being marked an asset? yes. >> it feels that the repo market might go away based on the way that the current regulation is written. it is too capital intensive for many banks to be in it. what do you think of the argument that banks are too vertically integrated? >> let's look at failures. the premise behind it is if only we could contain business lines to discreet activities -- discrete activities then we wouldn't have these problems or perhaps wouldn't have the 2008 crisis. those aren't the facts.
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i mean you look at the number of institutions that were engaged in commercial banking or simple monoline or nearly monoline business activity. this proportionately seemingly safe mortgage lending or localized commercial property lending, and they failed at high rates. so this notion that you have somehow segregated business lines and made them a safe proposition is not ack rate based on what happened in 2008. would countrywide even have been regulated? it is revisionism to say that this -- that the crisis would have been prevented by a separation of commercial and investment banking. >> well -- >> revisionism to a certain extent, but in the age of huma call when he created the
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interstate bank and you just saw your bank branch in a bunch of different states we weren't have the debate about whether that bank would bring down the financial system. >> i think the fact that enterprises of different sizes, different risk profiles failed misably -- miserably. they all failed. the question is, are there things we should do for the most risky to make sure we don't have more collateral damage than is necessary. keep in mind, as tom mentioned, he concedes -- he thinks that we'll still have significant presence under his proposal on a global stage. but the rest of the world's banking and finance departments are even more competitive than in the u.s. we are competing on a global stage. and as i said at the onset, banks of all sides to meet our needs, and that includes large commercial enterprises.
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>> a couple things. no one said that by separating out these institutions we would end failure. you don't want that, i don't want that. what i'm saying is, it makes the risis far more manageable. now, the fact of the matter is, it was a system that had the safety net behind it, that was helping underwrite c.e.o.'s that became the source of the crisis. that's part of the contribution to the crisis that we cannot deny. ing second, i think it is very important to remember that when you say capital -- if we put capital in, it will slow growth. we also know from the studies that have been done, strong capital, when you do encounter the crisis which is inevitible, you have less negative effect on lending and those who are in
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need of loans through that period when you don't have any capital and you have to shrink down noshed to -- in order to eet minimum standards. so number one, you create these to embed instruments and now you have put them into the market, because now you put all these broker activities into the market. the commercial bank aggregates -- they have this enormous safety net that aggregates the loans. they package them. they sell them to the different hedge funds. lehmans takes a long-term asset, sells it back to the bank. there is interconnectiveness, and the frajilt becomes explosive when it occurs. when we had glass steigel, it was a horrible crisis, but we
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didn't have the entype tire economy shrinking. we didn't have the entire economy in panic. only after when we allowed it to expand to an almost unlimited basis did we create the environment that almost brought the world economy down. >> they can shave off prices and ultimately to the end consumer. that is perfectly legitimate. that then results in a secondary debate which has resulted in what is now called the subsidy. the bigger you are, the more benefit you get from being big. academicics have pinned this anywhere from $4 billion to $5 billion taking into account an implicit government backstop, which we know here we no longer do not have or apparently do not have. also a range of other things that you get from these synergies. ich of those costs in that
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calculus are legitimate. >> we have to look at the premise. most of the studies that have been done today on stubs distake a moment in time that are crisis or precrisis and make determinations based on that. they don't take into account or fully take into account the burdens and risk that is reflective of crisis and regulatory frame work. the studies that do what i've just suggested which is to take a post crisis view of it, reach a different conclusion. for example, oliver wyman just produced a study that took a post-crisis look at the subsidy and concluded it was incons consequential. that's number one, the data said in preor post-crisis perspective. o, you look at objectionford -- oxford commicts that say all
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have disadvantages based on economies of scale and other factor. you look at the cost of finding advantage in utilities or energy or other sectors, and there is always a cost of funding advantage, the question is, is there something abnormal about what is taking place in that range of financial services. finally you have to look at it that some regulating industries are saying in the wake of dotd-frank they are going back to their version of par to the effect of their subsidy. they don't think it exists or it only exists in an incons consequential manner. what's government's roam in
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coming in and saying you in energy or pick your sector can't be too big? i suspect that would make a lot of people nervous. >> we all do it. it is very convenient to pick the studies we like, but if you ok at the preponderance of studies, it is pretty clear that the majority of those studies are saying there is a risk in being too big too fail. more recently, studies have shown yes there can be a difference in terms of scale, but in the end, the banking industry, there is clearly an advantage in being too big to ail. it clearly exists by most studies and measures that have been done. economies of scale. i understand economies of scale. i am willing to suggest they end
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somewhere below 2 trillion or a trillion dollars. after that it becomes the advantage of too big to fail and leverage. when people use the word "efficiency" i want to be very careful what they mean. more often they can use efficiency and i can say leverage. when you can lever up, you can get your r.o.e. up and you can compete down on the margins, and you still win, because you can out-compete anyone else, because you can out-price them. you have the leverage, you have the safety net, you have the advantage. that's what's going on in the united states today. a tremendous advantage which they like to call "efficiency" which is mostly leverage. when you look at these banks having half as much real capital as the banks at the regional community bank level, it is clearly an advantage. they can go in any urban area or rural area and under-price their competition if they choose because they have half the capital requirement.
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their cost of capital is less and they are too big to fail. >> i don't think any share holder would complain that their r.o.e. is too high or over-advantaged, but when you think of balancing the priority with regulators, think of a company like goldman sachs. r.o.e. when they went public in the 1990's and single digits now. >> i want to jump back to what tom just said. he just suggested that because of leverage advantages, larger institutions have marketplace advantage. in fact, the evidence would suggest that since 2010 the marketplace has switched to regional and mid-sized banks. if this leverage advantage existed that tom just described, why would the market be shifting away from larger institutions in terms of market shift? >> i'm happy to answer that
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question. >> those two things need to be reconciled. and i'm not finished, but i'll come back to you. on the issue of r.o.e., money follows returns. so if you are looking for capital, and you have an option to invest in company x and they have an 8% return and they have a chance to go somewhere else and get 12% or 14% i think i know where i'm putting my money, assuming reasonable risk concerns. one thing they have to manage against is at what point do you drive down r.o.e. so low it becomes difficult, impractical, or maybe impossible in some scenarios to track capital? we're not there yet, but there is a lot of worry, i would say, about that phenomena. >> what are your member organizations telling you that level is? >> i don't know that they have quantity identified it, i think it is -- quantified it. i think it is a directional
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concern. >> first of all on r.o.e., obviously the industry is still going through transition from tremendous excesses that they were involved in around 2008, 2009, number one. number two, they are still putting huge reserves -- they are actually releasing reserves, but they are still dealing with penalties that they have, reorganizations around that, and so as that settles ute, that advantage of too big to fail comes back to them just as it did in 2006, 2007 leading up to the crisis. so i think that's important. in terms of cost in raising capital, certainly you have to have r.o.e. to raise capital. the fact of the matter is, from from the ing -- passage of graham-pliley to the crisis, the market capital went in twice. when the crisis came in, they were able to raise capital even
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though r.o.e.'s were down because they have this very substantial advantage. when you look out in the future, i think they see that they are going to get their money back. they have a very strong advantage in the market, and they are going to recover in time, and i think continue to be argese dominant players. >> capital hasn't only been a drak drag on r.o.e. jamie diamond said they haven't been able to lend as much because of the $900 billion in capital they have sitting at the fed. many would argue they shouldn't have been making many of the loans they would have before the crisis, so mib maybe that activity is normalizing. but what can you do in washington to spur some of that activity to get the economy growing again so consumers can access loans again without endangering the stism?
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>> issues about how strong they actually are, how much capital they actually have. they see what's going on in europe. and as in terms of large institutions, so they are more cautious. the management is more cautious as well. because they have this book that they have to work through, they have to get through the crisis that they were a part of. once they get through that, i think lending will come back. and if they have good, strong capital that they have confidence in -- you compete best from a position of strength. position of strength is where you have capital that brings onfidence forward. the regional banks have twice as much capital. they are making loans.
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they are competing. when the larger banks finally get to that position, they will be out there as well, with their too big to fail advantage. >> it is not just banks that are too big to fail. you have other institutions being looked at by the financial oversight council. insurers. i want to open it up for questions in a few minutes. word association, tim. do any of those companies strike ou as too big to fail? >> well, the fsoc is going through some organizations. the o.f.r. recently put out an accord as it relates to asset management entities that signals some concern. we have some signality of the o.f.r. report. if you -- you know, look. we have asset managers whose firms could fail, but that
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doesn't necessarily mean the unds would fail. funds and proceeds would move elsewhere. you could have an extremely large s&p 500 index fund that would be enormous in size but not necessarily risky or ifficult or complex to manage. members continue -- try to think of asset managers in a world of systematic managers and decision making, that's going to take some additional decision making.
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we are hopeful there will be g.s.e. reform. there has been some work in the congress. there has been some momentum. we are hopeful they might even act on this year. there is work to be done on that front. clearly maintaining fanny and freddie in a conserve toreship -- conservatorship is the least best option. >> tom? >> i feel we should be cautious adding to the list of siffy designations for insurance companies or asset managers ecause it has two effects. one it makes them known as systemcally important and therefore subject to government bail out under the right circumstances. i don't know that that's necessarily a good outcome. number one. on fanny and fedy, i agree.
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we need to solve that problem. it is an intractable problem right now because housing is such a sacred word in the united states that i don't see an easy solution coming out of that at ny time. >> in the traditional banking sector right now, there has been a question of succession planning. in addition to the too big to fail there's been the problem of too big to jail problem. citi-group was such a sprawling interests tulettution while you might know what your vision is for an institution like that, it to lmost impossible toll -- implement it uniformly throughout the entire -- uniformally throughout the institution. how difficult is it to pick someone equally competent? >> it is a challenging
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environment. you look at these institutions. setting aside risks, setting aside system patic risk, setting aside your question on size. even if you were to clon conclude, they are very large and therefore present some challenges, it is not government's job to come in and say, you must be smaller on that asituation alone. running a larger enterprise is more challenging than running a business that is smaller. it doesn't mean it shouldn't be done. i was the governor of minute mib minute -- minnesota. if you include the higher education reports we had 28 direct reports and a $50 million all in budget. our question was somewhere during a week someone is going to do something stupid. it is the law of large numbers. have you to have controls in place to detect it. have you to have systems in place to mitigate it. when you assemble a large number
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of human bings, some predictable percentage of them are going to do some odd things. that doesn't excuse it. that doesn't mean it should be incons consequential, but you put 500,000 people in a room, you are going to have some folks go off the rails. it is proportionly the same in small and medium-sized enterprises as well. it doesn't happen as frequently because they have smaller numbers. it is the law of large numbers. that being said, we needed better rel regulation, more oversight. nobody disagrees with the goals here. the goals are, let's get a system in place so that large institutions can fail. l people -- >> hewlett packard, apple, these companies have large numbers of employees, but what about the banks is so different in this
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ector than in any other? >> well, i think their model is much more vast. they have different numbers they are trying to manage. secondly, they are much more leveraged than mue let pack ard. they have a higher equity level, much more room for mistake. think about it. if you are 96% leveraged compared to 20% or 30% or less, you are -- your ability to make mistakes are confined that much more. you have a 3% or 4% margin of error. that's why those mistakes become o big automatically. >> i have some questions.
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i'll start with one that came from the audience but was submitted early. what conditions would take us into another financial crisis? have we sufficiently mitigated those risks and what new ones re you fearful of? >> well, i think we have, depending on what circumstances occur in terms of shock, you have institutions that remain highly leveraged. you have institutions that are highly interconnected. you have interests tuges that are engaged until derivative activities that they themselves are highly leveraged, so that if you have the right kind of shock, i think we would be in difficulty fairly quickly today. whether it would be to the same tent as 2008 given their assets have been chaken out to some degree, i think it's probably less right now. but i think that can change with
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time because they are continuing to build the leverage and interconnectedness and that only in time builds to a systemic problem. we were talking about the issues around leverage and so forth in 2006, ntry 2004, 2005, but it was 2008 before it finally struck. the right circumstances, i think we would have a highly volatile fragile system. >> and it was 2008 before we finally got a rule on it. >> that's correct. >> i think the crisis could be triggered by a number of things, including a geopolitical circumstance. pick your example, but there are -- percolating right how now. a second would be continued rse or more dramatic cyber-security threats. right now there are distributive
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denial of service attacks. but this is getting more sophisticated by the day. it is getting more menacing, more aggressive. we talk about scenarios. fortunately the financial services industry is probably the most advanced of any sector with respect to cyber-preparations compared to other sectors. there is still a bunch of work yet to be done. you know, we worry a lot about what could happen. there are trillions trillions of dollars of payments that flow through new york, frerks every day. if someone were able to disrupt the payment system even for a week, you know, that would royal, i think, consumer confidence, the economy in ways that are very devastating. think, for example, a month or a week where people can't use electronic checkout readers at a grocery store or at walgreens. you can't control inventory because the electricity grid is down. not for a day but for a month? you know, these are very
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concerning scenarios, and that would be highly disruptive. we also know, as we look back at the crisis, let's be blunt. the circumstances and behaviors that led to the crisis were stupid. the underwriting was atrocious. the behaviors were awful. he benefit of behindside sight -- of hindsight would kuwait of course that was atrocious. now here's something -- more stupet behavior could trigger a crisis. >> can i make a commept? it is somewhat related to that. one of the issues that bothers me a lot is when i suggest we simplify the system, that's subtive, too, but the fact that we need more regulation more spferings for these institutions bothers me because if you had a simpler system and it could be supervised more directly, i think we could actually think about at least having fewer
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regulations. at would be, i think, very beneficial to the growth of the economy. simply adding more and more regulation and having them look more and more like utilities stead of private intermediaries that produce outcomes that are growing the g.d.p. rather than constraining it. >> that's a conversation we could go into for a very long time, but we have someone patiently waiting. >> 20 years ago we had 14,000 banks in the u.s. now we have about 8,000. is there an optimal anybody? and the alternative, 20 years
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from now, how many do you think we will have? >> i don't know that there is an optimal number. i think it is important for our economy to have a robust number. what the point of over-capacity of nder-capacity of any sub segments are, i couldn't give you a number. i think we would be doing the country a great disservice if we didn't promote and encourage banking of all sizes across all geographies. >> i completely agree with that. i think the advantage of this , untry over the decades centuries perhaps, has been a decentralized banking system which allows it to serve the largest and smallest entrepreneur. i would like to see that continue on a level playing field. i don't know what the right number will turn out to be. it depends on economics, but it also depends on the regulatory structure and the advantages
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some have over others, and therefore the decisions we make going forward from here in terms of structure, in terms of how we use the safety net will define what that number will end up being. wlm it is very few or a larger number. i don't have the answer to that either. > and no forecast? >> no forecast. sorry. >> good afternoon. my name is molina robinson. i'm with the executive intelligence review. to address the future. the e.u. finance ministers, they agreed on bail-in on march 19th when they signed their compromise into law. immediately after that, the major institutions downgraded the -- a few days later wall street banks failed the stress
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test. mr. hoening has been warning of a looming crisis, a systemic crisis. but that would be triggered by this bail-in. i would add that since you brought up the growing strategic conflicts that this is in fact the driver of the growing conflict, but i wanted o ask you to not so much comment because you have already stressed your support for class steigel, i want to ask you why in ay glass-steigel is -- the context of this. >> i'm not sure -- are you suggesting that bail-in solves the problem in europe? >> no, i'm suggesting that that could be the trigger of the complete meltdown of the
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financial system. >> well, that's truly speculation. i don't think i'm ready to go there. think, in terms of glass steigel, what i'm saying, what you accomplish in terms of confining the safety net for what it was originally intended to cover, commercial banking payment system and mediation around that, and leave the highly specktive outside of the safety net means you will make crises more manageable, less disruptive because you don't ave these enormous interconnectedness, high-risk relationships that tend to implode when some shock does hit the system. so bail-in is designed, in europe, i think, to say, all right, for the uninsured
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depositors, they are going to take some hit. our form of that is in the minimum debt for the top-tier holding company, it's a different form. there's would be the deputyors. so i guess the fear is you would trigger a run sooner than would otherwise happen if you are guaranteeing all the deputies. - guaranteeing all the deposits. that's a risk. more than that, i don't know. >> can i ask a follow-up question? you talked about title 2 in dodd-frank, as i understand, that is the bail-in mechanism in the u.s. is that correct? >> it is a form of bail-in.
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but the way it is being talked about, you would have at the parent holding company you would be required to issue debt instruments, so you would have equity, and on top of that you would have debt, and then your operating units would be underneath that. so if you had a failure perhaps caused by one of those operating units, you would take that debt, you would be forcing that down into a subsidiary. that's the bail-in for that group. so it would be priced accordingly with the risk and so forth and with knowledge. the problem is, for those operating units that the world knows cannot fail, they have a significant advantage over those operating units that were not thought to be too big to fail. so it is a form of bail in, but
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significantly different than hat you described. >> aaron klein, bipartisan policy center. governor you mentioned that some banks should fail. i actually agree with that. there are over 7,000 banks. i can't think of another industry in the country where there are so many and nobody fails in any given year is considered a good thing. the longest period in our mystery without a bank failure as the run-up to the crisis. so intellectually speaking, what do you think should be the right number of bank failures in any normal given year? >> well, i don't think i said or didn't mean to say there is a
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fixed number of banks that need to fail every year. i think banks that fail should be allowed to fail. there shouldn't be a public bail out of that in the unwinding of that institution if it deserves to fail should be as order earl as possible, and our policies and regulation to be designed to mitigate the capital damage. the fdic, to over-exaggerate for purposes of dramatic effect have the white vans roll up to institutions on friday, do work over the weekend, and by monday or tuesday the sign out front is different, and things continue on with some behind-the-scenes work. we shouldn't leave the impression that banks don't fail. they do. there shouldn't be some quota on failure accident but banks that deserve to fail, should fail. it is the nature of consequences for unwise or decisioned gone wrong. that's how businesses work. banks shouldn't be any
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different. >> tom, the other way to disrupt a market is to have companies merge, and it seems that it would be impossible for their to be a transformtive situation in the banking industry for the optimal number of failures, if you can even go there. i'd also love too hear your thoughts on whether you think it is healthy for an industry not intergrate -- innovate through merger? >> i certainly do not think it unhealthy for a bank to innovate through merger. i have no problem with that. i don't have an optimal number of failures. i agree that the main thing is that the institution should be allowed to fail and that it -- d be not, shall we say part of it be supported by the
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perception and reality of a public backstop which allows them to take on greater risk than they otherwise would take. that's the problem that we have onfronted. >> you know, in banking hearings in the early 1990's, we ended "too big to fail." "we ended too big to fail" is the promise we heard. we're not going to have too big to fail. but of course we did have too big to fail, and the next crisis that came along of any big size, and that's why people don't believe us when we say we've taken care of "foo big to fail." >> janet yellen has to affirm to congress by the end of this year that the administration and washington regulators have cured "too big to fail" and that it is no longer a problem. how confident can she be in that assertion at the end of this
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calendar year? >> that's an issue that these going to have to confront. i don't have any advice for her right now. it is still early in the year, and we'll see what happens to the revt of the year. >> would you be able to say that to congress by the end of the year? >> it depends on whether or not people listen to me between now and then. >> if too big to fail is defined as ending public bail outs of financial institutions, rticularly large financial institutions, the law says that. you can choose to believe the law or not. i think a lot people say as a practical matter, notwithstanding what the law says they will amend it and do something else. let's say hypothetically you change commercial banking and investment banking and you still have big ones in both and some mix of both go down. rpt the same pressures still going to exist? you know. one other thing unrelated i did
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want to mention, we should be mindful of the fact that as regulations get to a certain point and you have legitimate institutions beginning to pull out of either entire lines of business or businesses within certain layers of customers, that has consequences in the marketplace for the consumers e're trying to serve and help. so you have some saying, we'll serve people here and to here, but we're not going to go there. you are beginning to change the market. when you have people saying, i'm not going to be doing advanced payday leppeding anymore, or i'm lending to do auto anymore because i can't be clear when they are going to come back to us on disparate impact? one net effect of all this could pushing the activities into
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say encoder space. it could be if you bake the cake too much, you could be harming the exact consumers you are here o protect. people >> people are argue with about this, but the fact of the matter i'm not ve a failure saying you make it more manageable, but that's what the goal is.
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it is not to end failure. it's not to punish anyone. it's to let the market work systematically from smallest to largest. that's what we are avoiding. >> for now we have to leave the conversation del. o thank you both so much for a very rmplet iveting discussion. >> david mckinley paid tribute to mothers and noted the origins of mother's day. role in our lives. we've all seen the sacrifices they have made to raise their children and the care and devotion that they dedicate to them. we know their commitment. mothers have been our greatest
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advocates. when we were young, they cared for us when we were sick, supported us in our pursuits, lifted us up when we fell down and read to us at night. they held our hand when we needed them. mothers work eight to 10 hours a day in the work force. then they come home, they do the cooking, the laundry, help with the home work and then get up the next day and do it all over again. so when was the last time we actually took a moment to say thank you? thanks for our mothers and grandmothers. take enough time to say, thanks, mom. there is one person who did in a very special way. see, a young lady born in 1864 in a small coal town in west
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virginia. her mother helped save thousands of lives on both sides of the conflict. when she passed away in 1902, this young lady, anna jarvis, wanted to celebrate her mother's life and came up with the idea of a national honor for mothers. mother's day. consequently in 1908, anna jarvis organized the very first official mother's day celebration which took place in andrew's episcopal church in graphton, west virginia. but anna wanted more team to honor mothers. she worked with the department store in philadelphia and soon thousands of people started attending mother's day events all in retail stores all across america. ollowing these successes, anna added this to the national calendar. she said they are bias toward
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male achievements and the accomplishments of mothers deserve a day of appreciation. anna jarvis started the letter writing campaign to newspapers and politicians urging to have this special day. many towns, churches, adopted mother's day as an annual event. her persistence paid off. in 1914 president woodrow wilson signed a measure officially recognizing the second sunday in may as mother's day. anna jarvis never married or had children of her own but she dedicated her life to establishing a day to honor her mother and all mothers across america. this sunday we will celebrate the 100th anniversary of mother's day. this holiday is just a small way to show our gratitude to our mothers and grandmothers. this sunday we can stop for a moment to simply say thank you
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when e when they're gone, our mothers are gone that loss reaches into all our hearts. it touches each of us. no longer will we hear the sound of their voice, the touch of their hand, their warm embrace. it causes a huge loss in all of our lives. we should pause this one day to say thank you to our mothers who love us in spite of ourselves. so mr. speaker, i ask that this mother's day we honor the dedication of anna jarvis, her vision, her dedication as well as all
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♪ >> this week on "q&a," our guest is journalist and author evan osnos, who discusses his new book, "age of ambition: chasing fortune, truth, and faith in the new china." >> evan osnos, in your new book, under the acknowledgments you start off by say

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